News comes that Lady Dalrymple and Miss Carteret, estranged cousins of the Elliots, have arrived in Bath. Lady Dalrymple is considered nobility, and Sir Walter is extremely excited about the prospect of renewing his acquaintance with her and moving with the Dalrymples among the very finest social circles in Bath. Anne is disappointed that her father and sister have so little pride as to be in awe of their cousins. Sir Walter writes the Dalrymples a letter of apology for their estrangement and receives a forgiving note in return. Anne is ashamed that her family talks of their high relations to everybody; she sees little of merit in her awkward, unaccomplished, and uninteresting relatives.
Anne talks with Mr. Elliot and finds he agrees with Sir Walter that the acquaintance with Lady Dalrymple should be pursued. Mr. Elliot believes that in a relatively small city like Bath, one's social circle is extremely important. He implies to Anne that he also worries about his uncle's connection to Mrs. Clay. He thinks such a potential attachment dangerous and he hopes to do everything possible to draw Sir Walter's attentions elsewhere.
Here, Austen introduces the issue of place, meaning one's position both geographically and in society. The two are highly connected. Mr. Elliot points out that Sir Walter's family may be relatively insignificant in London due to their 'present, quiet style of living,' but in Bath they are able to move within prominent social circles. Anne takes offense to the idea that one's social worth is dependent on one's location. She has a more nuanced and complex vision of social standing, in which value is placed not only on birth and wealth, but on one's accomplishments, manners, and interests. In Somersetshire, the Elliot family is considered the very best; here in Bath, they could be understood to be socially beneath their cousins, the Dalrymples. Anne has pride, and she is offended at the thought that such unaccomplished and uninteresting people could be ranked above her.
Austen does not believe that the class system should be discarded. Anne is extremely conscious of class, which explains the offense she takes at the prospect of having Mrs. Clay for her step-mother. Anne is unaccustomed to being thought beneath anyone, and in some ways, she has more pride than her father and sister. She cannot bear the thought that such a respected, landed family such as hers must live in rented rooms in a city, while their home is inhabited by others. Anne is further dismayed at the small degree to which her father and sister seem to be upset by this. Austen is expressing that a certain amount of pride can be a good thing, if it is based upon true merit and not false appearances.